RICS Red Book - UK National Supplement - Call for Views - CLOSED

Valuations for financial reporting were the original raison d’être for the Red Book in the 1970s, and subsequently was the driving force for the IVS. Financial reporting still makes up a core element of the advisory content of the UK Supplement in its current format as per UK VPGA 1.as well as comprising content within Global – Valuation Standards (VPGA 1: ‘Valuation for Inclusion within Financial Statements). 

The reasons for this consideration of RICS financial reporting related content are as follows: 

• Review alignment with the suite of overarching RICS standards, such as the current Global Valuation – Standards “Red Book” effective from 31/1/2022 and Rules of Conduct effective 2/2/2022.
• Consider current end-user, market and professional assurance requirements.
• Assess the need for any further content around emerging issues such as incorporating Environmental Social and Governance (ESG) factors in financial reporting, introduction of IFRS 16 etc.

RICS will be engaging and consulting on financial reporting in valuation throughout 2022, with appropriate updates to standards and guidance targeted for 2023. RICS will seek the views of key stakeholders across the financial reporting sector of the real estate industry and all changes will be subject to a full public consultation.  

In order to shape our development of financial reporting content, we are undertaking this Call for Views of the content contained at UK VPGA 1 Red Book UK Supplement.

Please note, financial reporting for public sector and considerations from the Valuation Review are covered in separate sections.

If you are interested in giving your views, please respond to the Financial Reporting questionnaire.

Public sector valuation is considered in a number of elements of the UK Supplement, comprising advisory material at UK VPGA 4 (Valuation of local authority assets for accounting purposes), UK VPGA 5 (Valuation of central government assets for accounting purposes), UK VPGA 6 (Local authority and central government accounting: existing use value basis of value), UK VPGA 16 (Valuations for compulsory purchases and statutory compensation) and UK VPGA 17 (Local authority disposal of land for less than best consideration in England and Wales).  

The reasons for this consideration of RICS public sector valuation related content are as follows: 

• Review alignment with the suite of overarching RICS standards, such as the current Global Valuation – Standards “Red Book” effective from 31/1/2022 and Rules of Conduct effective 2/2/2022.
• Consider current end-user, market and professional assurance requirements.
• Assess the need for any further content around emerging issues such as incorporating Environmental Social and Governance (ESG) factors in financial reporting, introduction of IFRS 16 in the UK public sector etc

RICS will be engaging and consulting on public sector issues in valuation throughout 2022, with appropriate updates to standards and guidance targeted for 2023. RICS will seek the views of key stakeholders across the public sector of the real estate industry and all changes will be subject to a full public consultation.  

In order to shape our development of public sector valuation content, we are undertaking this pre consultation of the content contained at UK VPGA’s 4, 5, 6, 16 and 17  Red Book UK Supplement.

Please note, financial reporting and considerations from the Valuation Review are covered in separate sections.

If you are interested in giving your views, please respond to the Public Sector Valuation questionnaire. 

RICS are reviewing all residential valuation content in the current Red Book UK Supplement and the residential mortgage specification contained in a previous (2015) version.  

The reasons for this consideration of RICS residential valuation content are as follows: 

• Review alignment with the suite of overarching RICS standards, such as the current Global Valuation – Standards “Red Book” effective from 31/1/2022 and Rules of Conduct effective 2/2/2022.
• Consider current end-user, market and professional assurance requirements.
• Assess the need for any further content around emerging issues such as Environmental Social and Governance (ESG), leasehold reform and automated valuation models.
• Provide clarity around the relationship with residential valuation content outside the Red Book UK supplement, for example the Valuation of Residential Leasehold Properties for Secured Lending Purposes Guidance Note.
• Assess and review standards in light of the dynamics and range of contemporary residential valuation, from mainstream mortgage valuations to investment valuation and specialist valuation purposes.

RICS will be engaging and consulting on residential valuation throughout 2022, with appropriate updates to standards and guidance targeted for 2023. RICS will seek the views of key stakeholders across the residential real estate industry and all changes will be subject to a full public consultation.  

In order to shape our development of residential content we are undertaking this pre consultation of the content contained at VPGA 11-14 and 18 of the Red Book UK Supplement and Appendix 10 of the 2015 standards. 

If you are interested in giving your views, please respond to the Residential questionnaire.

The Review of Real Estate Investment Valuations was largely UK focused and principally looked at higher risk valuations upon which third party reliance is placed – essentially the valuations described in Red Book UK Supplement, VPS3. The review also made wider recommendations for the valuation profession that are not going to be reflected in this update of UK standards – such as around education and the professional assurance framework.  

To assist the user with understanding whether recommendations are in scope or not, a table has been included below. All changes are subject to the approval of the RICS Standards and Regulation Board.  

Valuation Review recommendation	In scope for UK Supplement update 2023?
Recommendation 1 – Commissioning and Receiving Valuation Reports. RICS should work with appropriate stakeholders in standardising governance arrangements for commissioning and receiving valuation reports for high-risk and ‘regulated’ valuations.	Yes
Recommendation 2 – Valuation and Advisory Activities Valuers, with the support of RICS, should ensure that the separation of valuation from advisory activities within firms is consistently applied in respect of the use of valuation data and instructions.	Yes
Recommendation 3 – Rotation RICS should develop a time-specific, mandatory procurement and rotation process for valuers.	Yes - a draft UK rotation policy based on Review recommendations is included in this consultation (the VPS3 questionnaire) for comment.
Recommendation 4 – Compliance Role. RICS should build on its existing ‘RICS responsible principal’ obligation by developing a Valuation Compliance Officer role to specifically cover valuation process and conduct.	No - this will be delivered through our Profession Assurance team and Regulation model
Recommendation 5 – Raising Concerns. RICS should ensure it has clearly signposted processes for its regulated members and other stakeholders to raise concerns about ethical conduct and address, amongst other issues, improper pressure placed on valuers.	No - this will be delivered through our Profession Assurance team
Recommendation 6 – Quality Assurance Panel. RICS should create a dedicated, independently-led valuation regulatory quality assurance panel, under the jurisdiction of the RICS Standards and Regulation Board.	No - this will be delivered through our Profession Assurance team and Standards and Regulation Board
Recommendation 7 – Valuation Audit Trail. The Red Book should include further standards around the conduct and recording of valuation instructions and meetings between client and valuer.	Yes – commentary related to this Review recommendation is included for comment.
Recommendation 8 – Analytical Approaches (i) Discounted Cash Flow The valuation profession should incorporate the use of discounted cash flow as the principal model applied in preparing property investment valuations.	No - this will be delivered through global guidance
Recommendation 8 – Analytical Approaches (ii) Advanced Analytics RICS should improve the knowledge and application of valuers in respect of advanced analytical techniques.	No - this will be delivered through global guidance
Recommendation 9 – Global Standards. RICS should maintain a record of valuation standards adoption and application in countries outside the UK where significant numbers of its Registered Valuers operate, in order to inform the extension of regulatory requirements and support to valuers.	No - this will be delivered through global guidance
Recommendation 10 – Standardised Property Risk Advice. RICS should develop a framework to standardise property risk advice.	No - this will be delivered through global guidance
Recommendation 11 – Post-Qualification Requirements and Revalidation. RICS should review its post-qualification requirements for valuers, and consider. introducing mechanisms for regular revalidation of valuers.	No - the first element will be delivered through our Education and Qualifications team. Note also the following consultation currently being undertaken by RICS: Review of Entry and Assessment into the Profession, and the role of post-qualification CPD
Recommendation 12 – Diversity. RICS should continue to build on its important work to ensure a diverse and inclusive valuation profession.	No - this will be delivered through our wider global work on this subject
Recommendation 13 – Culture and Behaviour. There is a need for further specific RICS guidance to clarify RICS’ expectations around the culture and behaviours expected of RICS professionals in the pursuance of valuation activities	No - this will be delivered through global guidance

Included here are prototype drafts of proposed new UK VPS 3 sections 3.3-3,5, written to generate feedback and discussion in responses to this Call for Views. They do not represent the final drafting of the Red Book, UK Supplement sections – the final versions of which will be subject to full public consultation and SRB approval.  

The prototype draft sections UK VPS 3.3-3.5 are intended to suggest a basic framework for the principles recommended in the Valuation Review. RICS is aware that in addition to these principles a framework for transition, application and professional assurance will also be required – which will be developed further to the responses and suggestions of this call for views.  

It is intended that the following sections once finally drafted and approved will become effective from the date of the UK Red Book supplement. Please use the questionnaire to comment on transition and application.

DRAFT FOR COMMENT - UK VPS 3.3 Rotation 

Where a valuation is for a regulated purpose, the valuer must ensure that a rotation policy is in place at firm level. They must also undertake due diligence to record and confirm to the client in agreed terms of engagement that the period for which the client has procured UK valuation services from the valuer or valuer’s firm for the same regulated purpose does not exceed five years, except for cases where there has been a break from valuation instructions from the same client for at least five years. 

The above requirement is in addition to those set out in the Global Valuation - Standards.  

DRAFT FOR COMMENT - UK VPS 3.4 Terms of engagement 

In addition to the standards set out in Global Red Book VPS1, valuers must undertake due diligence to ascertain whether the instruction or draft instruction has been made with the approval of one of the following authorities from the client firm: 

a. A non-executive director 

b. An independent chair of their audit committee or equivalent 

c. A corporate compliance officer or equivalent 

The valuer must also confirm with the client in agreed terms of engagement whether any of the instructing client parties receive a direct fee or benefit from the result of the valuation, including its comparison to performance indices or other benchmarks. Where this is the case, it must be clearly stated within the report, including any published version. 

Where any instructing party, including in respect of draft instructions, is an RICS Member the valuer must receive written confirmation from them that they are aware of the Rules of Conduct and Professional Statement - Conflicts of Interest and have adhered to these in agreeing terms of engagement for the subject valuation. This confirmation should be included within the valuation report, including any published version.   

Permission for the valuer and their firm to use client data from the valuation for other valuation and business activities must either be expressly confirmed within the terms of engagement or there should be a statement that confirms that such data will not be used for other valuation or business activities. The valuer must ensure that adequate data security is in place to safeguard inadvertent or inappropriate sharing of such data, internally or externally. Valuers are reminded of the confidentiality requirements contained in PS2.3 of Global Red Book. 

DRAFT FOR COMMENT - UK VPS 3.5 Preliminary advice, draft reporting and client discussions 

Valuers should be familiar with Global Red Book PS2.3.12-3.15 covering preliminary advice, draft reporting and valuation discussions.  

The requirements of Global Red Book PS 2 3.14 and 3.15 are amended for UK regulated purpose valuations as follows, and are therefore mandatory:  

To demonstrate that valuation discussions have not compromised the member’s independence, a file note of discussions with the client on draft reports or valuations must include: 

• the information provided, or the suggestions made, in relation to the valuation
• how that information was used to consider a change in material matters or opinions; and
• the reasons why the valuation has or has not been changed.

If requested, this record must be made available to auditors or any other party with a legitimate and material interest in the valuation. 

If you are involved with regulated purpose valuations and would like to comment on proposed changed and make suggestions for further changes to UK VPS3, please respond to the UK VPS3 questionnaire.